Life Sciences Research, Inc. (LSR) announced Thursday that it has entered into a definitive merger agreement to be acquired by Lion Holdings, Inc., an entity controlled by LSR’s Chairman and Chief Executive Officer, Andrew Baker, for $8.50 per share in cash. Mr. Baker currently beneficially owns approximately 17.5% of the outstanding shares of LSR.

On our March 16, 2009 post, we specified that LSR was a special situations play with a high probability of realization. We also pointed out that this was not a long-term play, as its mediocre earnings power did not make it a long-term value candidate. We are now closing our position on LSR, for an absolute return of 20%.

Yesterday, Redknee (RKNEF.PK) announced its second major contract in two days, and the third in less than a month. See the post from June 6th.

The trend for Redknee continues to be international with the June contract located in the Middle East, Monday's multi-million dollar contract with a Tier1 operator in Europe, and then Tuesday's announced contract in Pacific-Asia. Investors should expect this trend to continue as operators in these regions look for mobile infrastructure and middleware solutions to support significant growing demand for mobile data services.

When searching for potential short/sell opportunities, The Applied Finance Group (AFG) screens companies using its proprietary Sell Criteria variables, starting with Economic Margin (EM). Economic Margin is a measure of corporate performance that identifies how profitable a company is by measuring how much the company earns above or below its cost of capital. In addition to corporate performance, AFG identifies companies that are unattractively priced using its valuation model. Lastly, AFG evaluates how well companies are run using the Management Quality score, which identifies companies with management teams that destroy wealth.

The 15 firms listed below all meet AFG’s Sell Criteria and all look extremely overvalued according to AFG’s valuation model. These companies all possess the characteristics of a bad investment and may be a potential torpedo lurking in your portfolio. AFG has proven successful since 1996 at identifying good companies as well as sell opportunities, providing a solid buy/sell spread.

Despite the tepid market action, the Century Club scan continues to generate lots of interesting charts. The Century Club scan is a technical scan using MarketClub’s smart scanner to search for charts that have a perfect +100 score in its objective scoring system, tweaked with a filter to focus in on microcaps. Here’s a few it pulled up this week:

ADA-ES (Nasdaq:ADES)

Comment: In Q1 report, CEO Durham said "With our interim AC [activated carbon] facility near start up and the construction of our AC manufacturing facility moving forward on schedule, we remain extremely enthusiastic about our market position and our prospects for recurring revenues along with substantial growth beginning mid-year 2010."

I wrote last summer about Vanda Pharmaceuticals (VNDA) and their difficulty getting a new antipsychotic Fanapt (iloperidone) through the FDA. At the time, they'd received one of those wonderful requests for more information from the agency, of the kind that spread cheer whenever they appear. I couldn't see how the company could clear this up without (probably) having to spend a lot of money that it didn't have, and I was very pessimistic about their survival.

And I was wrong. Big-time. Vanda received approval for iloperidone, in what is a major surprise not just for me, but for the company's hardy shareholders and for the few analysts left covering them. After congratulating the company, I feel like asking them "So, how did you do that, anyway?" To the best of my knowledge, the company didn't go back into the clinic - and it's hard to see how they even could have. Less than a year just isn't feasible from a standing start in an antipsychotic trial just on logistic grounds, let alone the fact that Vanda doesn't seem to have had the funds to even try.

Many of the institutional clients of The Applied Finance Group, Ltd. (AFG) tend to focus on large cap stocks and benchmark themselves against the S&P 500 Index, which is why many of the buy ideas from ValueExpectations.com usually come from the large cap index. Earlier in the week we highlighted companies from our buy/sell list both from large and small cap, as well as from growth and value style universes. We thought it would be a good follow up for some of the investors we work with who focus on small and mid cap stocks, to provide a more thorough list of companies from the Russell 2000 Index.

Below is a summary of 20 companies to watch from the Russell 2000 Index. The table highlights the 2 companies from each sector (ex. Financials) that have the most attractive Value Score (above 80) and are currently rated Neutral or higher by AFG’s buy/sell criteria. Factors used to derive an AFG recommendation include: Expected change in Economic Margins, Intrinsic Value, and Management Quality. Many classify stocks with market capitalization under $250 million as micro caps, therefore only those companies within the index that met that market cap minimum were considered for the list.

At the moment, employment sucks and we know that. BUT, we also know it will get better. Let's look at a potential play on that improvement.

When the turn does come, where will we look? I am guessing employers will crawl, not rush into re-employment of staff. With that being said, I think companies that provide professional services will be the first to benefit from this trend. The cost / benefit to the employer is huge and given any recovery will most likely be a shaky one, employers will want to add people at a minimal cost in terms of both training and continued employment cost. Volt enables both of these scenarios.

• July 2: Zevalin
• October 8: Fusilev

August	Phase 2	Fludarabine Plus . . .
September	Phase 2	Response Study of Zevalin in Patients with DLBCL after 6 cycles of CHOP.
December	Phase 3	Study Comparing Zevalin Regimen with NO FURTHER TREATMENT in DLBCL Patients who are in Complete Remission after CHOP-R

After more than a year, I am back in Highway Holdings (HIHO), a Chinese manufacturer of parts, components and sub-assemblies. First, a word of caution: this is a very thinly traded stock. When I placed my order last week, the bid was at $1.26 and the ask at $1.39 — roughly a 10% spread. It took all day just to fill my initial buy of 10,000 shares.

Stocks trading that thinly require a whole new level of patience, but can be quite rewarding. Yesterday is a good case in point. With volume edging over 60,000 shares — a heavy day for HIHO but a pittance for most stocks — shares rose over 23%. The leap even put the stock on Monday afternoon’s Century Club scan,

It's been a tough year for value stocks. Is that surprising? No, although it reminds that Mr. Market prices certain slices of the equity market differently throughout the business cycle.

For the year through June 26, the rebound in equities has been powered mostly by growth stocks, according to Russell indices. As the chart below relates, growth stocks in general have been the conspicuous leaders through the first half of 2009.

Free cash flow (FCF) yield can is an often overlooked financial metric in equity valuation. The cash generated from operations after capital expenditures is what effectively belongs to shareholders in the form of dividends or retained earnings. That’s why many fundamental value analysts use FCF yield as an important gauge of the ongoing financial health of a company. If cash is king, then free cash flow is the path to royalty.

Here are ten stocks with high double digit last twelve months free cash flow yields (actually greater than 12.5% FCF yield when considering an anticipated drop of no less than 20% during a weaker 2009) with price to tangible book values and trailing P/E ratios less than or equal to the average values of the Russell 2000 small cap index.

Small caps are like high Beta Pictoris asteroids.

After watching the horrific 50% haircut in Insmed Inc. (INSM) Friday, I contacted pro small cap trader Kunal Desai for feedback on proper risk management when trading these high beta plays.

While looking through the stock picks from my quantitative ranking systems, I came across Atwood Oceanics (ATW). Atwood Oceanics is a small cap offshore drilling services company which owns a small rig fleet.

Looking at this page it is hardly surprising that Atwood Oceanics receives high marks from my rankings system. It scores better than average on valuation and growth, and also has a solid balance sheet and high margins.

CME operates the largest television advertising network on inter-city express buses in China. CME generates revenue by selling advertisements on its network of television displays installed on express buses originating in nine of China’s regions, including the four municipalities of Beijing, Shanghai, Tianjin and Chongqing and five provinces, namely Guangdong, Jiangsu, Fujian, Sichuan and Hebei.

Keryx Biopharmaceuticals (KERX): It's usually a positive indicator for a stock when insiders buy shares of a company because it tells investors that those insiders are confident enough that they are willing to put their own money on the line alongside the common shareholders. This week insiders continued to buy shares of Keryx Biopharmaceuticals.

While it may be a positive indicator for the KERX stock, I got a good chuckle out of the amount of shares that were purchased and the total cost of the transactions. The most recent transactions, according to filed SEC paperwork, were for a whopping total of a few hundred bucks! Don't get me wrong, an insider buy is an insider buy, but you expect to see a whole lot more shares purchased and money spent when insiders buy.

China Natural Gas (CHNG) has registered with the SEC that it intends to sell up to $60 million of common stock, preferred stock, warrants and units. The company intends to use the proceeds to finance growth, including a possible acquisition and expanding facilities.

In other words, CHNG needs more money for expansion. The announcement timing was bad - the market was down. So the stock went down along with the market on Monday. Of course, investors are concerned about potential earnings dilution with more stock outstanding. This caused some investors to sell.